The Biden Administration has signed an executive order to address the global automotive semiconductor shortage that has hit automotive OEMs hard.
The root cause of the automotive chip shortage is the COVID-19 pandemic, which led automotive suppliers to cut demand for chips because of the downturn that followed. As demand increased for cars, semiconductor manufacturers lacked the capacity to handle renewed interest in automotive chips as these manufacturers had shifted their lines to other industries.
The executive order will launch a 100-day review of supply chains for four critical products: semiconductor chips, advanced batteries for electric vehicles, rare-Earth minerals and pharmaceuticals.
President Joe Biden in a televised address said the order would help to shore up supply of chips and promote domestic U.S. chip manufacturing of these devices to prevent further delays in production as well as protect American interests against competitors.
Additionally, President Biden said the executive order will review six sectors and provide recommendations on how to shore up these sectors. These include areas of defense, public health, communications technology, transportation, energy and food production.
The chip shortage has caused automakers to temporarily cut production at Ford’s F-150 plants, GM’s assembly plants and Nissan, FCC, Volkswagen and Toyota have also seen reductions. American carmakers Ford and GM have stated that the shortage could mean earnings cuts in the neighborhood of $1 billion to $2.5 billion.
While the initial executive order calls on a review of the industry's supply chain, the Biden Administration said it intends to take action to close any gaps that impact carmakers.
The Biden Administration, along with U.S.-based chipmakers and organizations, are calling for renewed interest in U.S. domestic chip manufacturing to prevent future problems such as the current automotive chip shortage and to shore up capacity for future growth, which is now being considered a matter of national security.
According to the Semiconductor Industry Association (SIA), U.S. semiconductor firms account for 47% of global chip sales but only 12% of chip production takes place domestically. The majority of manufacturing is based in Taiwan, China, and other parts of Southeast Asia. About 35 years ago, U.S. chip manufacturing accounted for 37% of global semiconductor production. The decline is rooted in the substantial subsidies offered by foreign governments that attracted new construction of semiconductor manufacturing facilities outside the U.S.
The SIA welcomed the executive order saying it will help “ensure the strength and resilience of America’s semiconductor supply chains” and urges the president and Congress “to invest ambitiously in domestic chip manufacturing and research.”
“Doing so will ensure more of the chips our country needs are produced on U.S. shores, while also promoting sustained U.S. leadership in the technology at the heart of America’s economic strength and job creation, national security, and critical infrastructure,” the SIA said in a statement.
Recently, Congress enacted the National Defense Authorization Act (NDAA) that has a provision called the CHIPS for America Act that promotes incentives for domestic semiconductor manufacturing and investments in chip research and enact an investment tax credit to spur greater domestic chip production.